Central Banks Gold Diversification Ongoing – “Sensible Precaution”
by John Stepek, Editor of Money Week
Central banks have got the economy and markets covered.
They know what they’re doing. Their theories are backed up by decades of academic research and expert advice.
Queen Elizabeth inspecting gold bars in Bank of England. Source: Money Week
Expert advice, as we all know, is completely apolitical, changes rarely, and never, ever does a complete U-turn, like – I don’t know – telling us all to start eating butter after years of telling us not to, or something crazy like that.
So why worry? I mean, what kind of deluded neurotic doom-monger would keep hanging onto gold (as insurance, of all things!) in their portfolio with people of this calibre in charge?
Well, I hate to break this to you, but…
Guess who’s buying lots of gold?
Central banks are piling into gold. They have been ever since the financial crisis blew up in 2008.
In fact, says a new report from the OMFIF (Official Monetary and Financial Institutions Forum) research group, central banks have been buying gold at a rate of 350 tonnes a year for the last eight years. That takes us back to the sorts of levels we saw in the pre-1970 era.
OMFIF has looked at central bank behaviour and gold buying going back over more than a century (back to 1871, in fact). It’s broken it down into seven “ages of gold’. There’s some interesting stuff in there, but I’ll only go back as far as post-World War II this morning, as that’s the most relevant to today’s topic.
So the fourth age of gold – 1945 to 1973 – covers the Bretton Woods era, during which gold reserves were rising, notes David Marsh of OMFIF, “with European countries and Japan amassing sizeable new post-war holdings as central banks exchanged surplus dollars for gold from the US Treasury”.
Indeed, between 1950 and 1965, central banks and treasuries bought up more than 7,000 tonnes of gold. Read full story…